Indonesia's Q1 GDP Growth Slows, Consumption Remains Weak

Indonesia's growth pace in January-March fell slightly from the previous quarter, reflecting still-weak consumption and indicating the government may face difficulties getting expansion up to its 5.4 percent target this year.(Antara Photo/Fakhri Hermansyah)

By : Reuters | on 12:32 PM May 07, 2018
Category : Business, Economy, Featured

Jakarta. Indonesia's growth pace in January-March fell slightly from the previous quarter, reflecting still-weak consumption and indicating the government may face difficulties getting expansion up to its 5.4 percent target this year.

Southeast Asia's largest economy grew 5.06 percent on an annual basis in the first quarter, the Central Statistics Agency said on Monday (07/05), weaker than both the 5.19 percent rate in the last three months of 2017 and a Reuters poll forecast of 5.18 percent.

Jakarta's main stock index, which rose as much as 1.2 percent before Monday's announcement, pared much of that gain after the data release before recovering to be up 0.8 percent.

The bureau said private consumption, which accounts for over half of Indonesia's gross domestic product, expanded just a tad below 5 percent, constraining the overall expansion.

Weak consumption has been the key factor keeping growth well below the 7 percent goal by 2019 set by President Joko "Jokowi" Widodo, whose five-year term ends next year. Jokowi's party has endorsed him to run for a second term.

Despite moves to build infrastructure, streamline regulations, attract investors and keep prices stable, annual economic growth has stayed close to 5 percent for years. Last year's 5.07 percent clip was the best since 2013.

The statistics bureau said a near 8 percent annual growth in investment, partly stemming from the government's infrastructure drive, was "very significant".

Leo Putra Rinaldy, an economist at Mandiri Sekuritas, said Q1 growth was "infrastructure driven, but there was no pick-up yet in private consumption."

But he said consumption may accelerate in the second quarter because of spending for holidays before and during the Islamic fasting month and on campaigns for regional elections.

Jokowi's administration recently announced a number of price control measures aimed at keeping inflation low and purchasing power high, in what critics called pre-election populist moves that distort the market.

Government officials said they need to guard purchasing power by keeping prices low when global oil prices are high and the rupiah currency weak.

In the first quarter, imports accelerated 12.8 percent from a year earlier, far outstripping the 6.2 percent increase for exports.

The tepid growth rate could put the central bank in a bind. Its governor has said Bank Indonesia (BI) would tighten monetary policy to halt further depreciation in the currency if that threatened the inflation target or financial stability.

BI, which cut the benchmark lending rate by 200 basis points in 2016 and 2017 combined, had repeatedly said its stance was neutral. Its next policy meeting is May 16-17.

Reuters

 

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